Indonesia Signs $1B+ Defense Credit Agreement With Russia

Russian President Vladimir Putin stopped in Indonesia to finalize a $1.2 billion defense agreement and to strengthen economic ties. Indonesia has begun buying Russian equipment, including the recent $335 million purchase of more SU-27/30 Flanker family fighters, but Defence Ministry spokesman Edy Butar Butar told Reuters that no banks had stepped forward yet to finance the deal. The Russian defense package opens a line of credit that will allow Indonesia to buy Russian military equipment during the next 15 years, something they can afford as natural resources have made Russia the world’s second-largest holder of foreign currency reserves after China. A pair of SSK Kilo Class attack submarines, 20 armored vehicles, and 15-22 helicopters are reportedly on the shopping list, as part of larger modernization efforts; meanwhile, President Yudhoyono was blunt about their other reasons for accepting:

“We want to diversify the sources of our equipment. Russia is offering us a generous package, and Russia also does not attach any conditions whatsoever. Russia is all business and does not attach any political conditions and that is the way we like it, and that is why we took up the offer.”

“Requirements for purchasing arms from Western countries are complicated, with pre-conditions attached such as human rights, accountability, not to mention licensing… In our past experience with Britain, we were not allowed to use Scorpion tanks in Aceh, even though we were facing armed separatists.”

Arriving on the eve the APEC(Asia-Pacific Economic Cooperation) 2007 trade conference held in neighbouring Australia, the Russian leader was accompanied by a delegation of oil, energy, and banking officials. The visit also included pledges of a $1.2 billion investment in Indonesia’s state oil and gas exploration firm, and a $3.6 billion investment in bauxite exploration and aluminum production.

Updates

June 30/11: A Turkish Ministry of Defense official tells Today’s Zaman that a deal with Indonesia for 2 U209 submarines is “very close.” If the expected deal between the two states is signed, Turkey’s Savunma Teknolojileri Muhendislik ve Ticaret A.S. (STM) would partner with HDW to build them in the Golcuk shipyard.

Sept 23/10: Russia delivers 3 Mi-35M attack helicopters to Indonesia, out of 5 planned under the $1 billion line of credit. RIA Novosti.

Dec 9/09:The Jakarta Post reports that Indonesia’s submarine buy is at least 4 years away from a contract, given the government’s needs and priorities. Navy Chief of Staff Vice Adm. Agus Suhartono is quoted:

“We will choose a country that can provide us with a product at a competitive price and offers better transfer of technology options,” he said. “The tender process will be open using a credit export financing scheme.” Each submarine is estimated to cost around Rp 3.5 trillion (US$371.85 million).”

“Three more companies from Russia, Germany and France competed for the deal. But sources said the Indonesian Navy demanded unacceptable terms so Daewoo and the German and French firms dropped out. Only the Russian firm remained, forcing Indonesia to instigate a second round of bidding… Russia is considered its major competitor, since it is backed by well-established political ties with Indonesia and an offer of a $1-billion loan. In another negative sign, the incumbent Indonesian defense minister is said to be pro-Russian.

In the end, the second bid is likely to be a duel between Korea and Russia, according to informed officials, with the other two bidding countries skeptical about Jakarta’s request on price cuts… Daewoo is planning to enter the second round of bidding for the subs, hoping to take advantage of ties cultivated since the establishment of its Indonesian unit in 1976.”

“There’s always been a plan to purchase submarines and I’ve surveyed a few submarine workshops in Moscow, Russia. This submarine will display our naval strength and allow us to be ready for any armed conflicts… It’s not necessary to own many submarines since they are expensive, just three state of the art units will suffice to safeguard the integrity of our waters,” Ihza said… My colleagues and I at the House have fought for an increase in defense spending, yet unfortunately this isn’t possible now…”

Indeed, only 1/3 of the proposed defense budget was approved. Jakarta Post.

“The Indonesian Armed Forces will soon receive a delivery of six Russian Mi-35 Hind attack helicopters… 15 Indonesian pilots and technical specialists have been undergoing training at the Kazan helicopter manufacturing plant in Russia’s Volga area since March 2008. He said the delivery of six helicopters was due in July… “The delivery date will be established after the parties finalize certain contract terms,” he said. Russia delivered the first two Mi-35 helicopters to Indonesia in September 2003.”

Sept 10/07: A DID reader writes to inform us that: “The 20 armoured vehicles are in fact BMP-3Fs for the Indonesian Marine Corps with option for another 100. The helicopters are five Mi-35s [DID: attack helicopters derived from the Mi-24 “Hind”], and the rest (17) being Mi-17s.”